TABLE OF CONTENTS

TABLE OF CONTENTS

Introduction..............................................................................................iv

1. INTRODUCTION TO INDIAN ACCOUNTING STANDARDS............................... 1

2. IND AS 1 : PRESENTATION OF FINANCIAL STATEMENTS.................................. 3
3. IND AS 2 : INVENTORIES............................................................................ 6
4. IND AS 7 : STATEMENT OF CASH FLOWS..................................................... 12
5. IND AS 8 : A
 CCOUNTING POLICIES CHANGES IN ACCOUNTING ESTIMATES
AND ERRORS........................................................................... 17
6. IND AS 10 : EVENTS AFTER THE REPORTING PERIOD................................... 19
7. IND AS 12 : INCOME TAXES...................................................................... 20
8. IND AS 16 : PROPERTY, PLANT AND EQUIPMENT [P.P.E]................................. 27
9. IND AS 19 : EMPLOYEE BENEFITS.............................................................. 37
10. IND AS 20 : A
 CCOUNTING FOR GOVERNMENT GRANTS AND DISCLOSURE OF
GOVT. ASSISTANCE................................................................ 45
11. IND AS 21 : THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE POLICY........ 52
12. IND AS 23 : BORROWING COSTS............................................................... 61
13. IND AS 24 : RELATED PARTY DISCLOSURE.................................................. 70
14. IND AS 33 : EARNINGS PER SHARE............................................................ 79
15. IND AS 34 : INTERIM FINANCIAL REPORTING.............................................. 87
16. IND AS 36 : IMPAIRMENT OF ASSETS......................................................... 94
17. IND AS 37 : P
 ROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT
ASSETS............................................................................... 102
18. IND AS 38 : INTANGIBLE ASSETS..............................................................107
19. IND AS 40 : INVESTMENT PROPERTY.........................................................111
20. IND AS 41 : AGRICULTURE.......................................................................115
21. IND AS 101 : FIRST TIME ADOPTION OF IND AS.........................................119
22. IND AS 105 : N
 ON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED
OPERATIONS....................................................................... 127
23. IND AS 108 : OPERATING SEGMENTS........................................................133
24. IND AS 113 : FAIR VALUE MEASUREMENT..................................................138
25. IND AS 115 : REVENUE FROM CONTRACTS WITH CUSTOMERS......................142
26. IND AS 116 : LEASES..............................................................................160

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 TABLE OF CONTENTS

27. ACCOUNTING FOR SHARE BASED PAYMENTS [IND AS 102]..........................179

28. FINANCIAL INSTRUMENTS [IND AS 32, 107, 109].......................................191
29. BUSINESS COMBINATION & CORPORATE RESTRUCTURING [IND AS 103].......230
30. CONSOLIDATION SUBSIDIARY [IND AS 110]..............................................257
31. JOINT ARRANGEMENTS, JOINT VENTURES & ASSOCIATES [IND AS 111]........279
32. ACCOUNTING AND TECHNOLOGY............................................................287
33. PROFESSIONAL & ETHICAL DUTY OF A CHARTERED ACCOUNTANT.................296
34. ANALYSIS OF FINANCIAL STATEMENTS & SCHEDULE III...............................312
35. CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING UNDER IND AS.........323

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 INTRODUCTION TO INDIAN ACCOUNTING STANDARDS

1
INTRODUCTION TO INDIAN ACCOUNTING
STANDARDS

Applicability of IND – AS Phase wise Applicability

Applicable for all entities except Bank, Insurance Companies, NBFCs.
2015 – 16: Voluntary application
2016 – 17: Mandatory application for
(a) Listed entities / entities in the process of listing in / outside India with Net
worth > 500 Crores
(b) Unlisted entities with Net worth > 500 Crores
2017 – 18: Mandatory applicability for
(a) ALL Listed entities / Entities in the process of listing (Irrespective of Net
Worth). (Limits not applicable for companies listed on the SME platform)
(b) Unlisted Entities with a Net worth > 250 Crores.

KEY POINTS

(1) Net Worth: Equals Share Capital + Reserves (excluding Revaluation Reserve)
– Fictitious Assets.
(2) Limits are applied on the basis of standalone Net worth. (And not consolidated)
as on the last audited Balance Sheet.
(3) IND AS can be applied voluntarily / mandatorily. However, if an entity prepares
its financial statements as per IND AS in one of the years, its is required to
prepare all future financial statement as per IND AS only.
(4) If IND AS becomes applicable to one of the entities in the group, it would become
applicable to other entities of the group as well i.e. subsidiaries, associates,
joint ventures, parent etc.
(5) Companies which are not covered under the above road map will continue to
apply AS.
(6) The above road map is not applicable for Banks, Insurance companies, NBFCs
as a separate road map is prescribed.
(7) IND AS is applicable irrespective of the entity being a charitable organization.
(8) Joint operation of an IND AS entity need not comply with Ind AS.

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 INTRODUCTION TO INDIAN ACCOUNTING STANDARDS

NBFCs Insurance Co.s Banks

18 – 19: Listed /
Unlisted > 500 Cr Deferred till further Deferred till further
19 – 20: All Listed, notice by IRDA notice by RBI
Unlisted > 250Cr.
(Voluntary applicability
is prohibited)

Additional Guidance

For Initial Applicability under Phase – 1 (w.e.f 1/4/16)

Net worth on 31/03/14 needs be checked. If company did not exist on

01 31/03/14 or net worth on 31/03/14 was less than 500 crores, we will
continue to check for IND AS applicability based on net worth as per last
audited balance sheet date.

IND AS need not mandatorily apply to fellow subsidiary. However,

02 parent may need to restate financial statements of that company for
consolidation.

In case there are Banks / Insurance Companies / NBFCs in a group, they

may continue under accounting standards. However, for consolidation
03 their Financial Statements may be restated to IND AS to the extent
practical.

(Refer Q. 1, 2, 3, 4, 5, 6, 7, 8)

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 IND AS 16 : PROPERTY, PLANT AND EQUIPMENT [P.P.E]

8
IND AS 16 : PROPERTY, PLANT AND
EQUIPMENT [P.P.E]

(I) Key Terms

P.P.E

Tangible Held for use Life > 12 months

(II) Definition of P.P.E

(a) Tangible assets
(b) Held for use (Production, Selling & distribution or admin use)
(c) Having Life of more than 12 months.

(III) Scope
IND AS 16 excludes:
(a) Non-Current Assets Held for Sale (covered under IND AS 105)
(b) Exploratory and Evaluation Assets linked to mining operations (covered under
IND AS 106)
(c) Biological Assets for agricultural operations (except Bearer Plants) (Covered
under IND AS 41)

Biological Assets for Agriculture

(Living Assets)

Living Plants Living Animals

Bearer Plants Other than IND AS – 41 (ALL animals)

(Note – 1) Bearer Plants

IND AS 16 IND AS 41

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 IND AS 16 : PROPERTY, PLANT AND EQUIPMENT [P.P.E]

Note 1

Bearer Plants
These are living plants which
(a) 
Bear agricultural produce (e.g. – coconut tree) and is not an agricultural
produce themselves
(E.g. Bamboo tree)
(b) They are expected to bear produce for more than 12 months. (E.g. A wheat
grain plantation will bear wheat in less than 12 months and then will be chopped
off. Hence not bearer plant)
(c) There is a remote likelihood of the plant itself being sold as agricultural produce,
except for incidental scrap sales. (E.g. A mango tree is held for the mangoes
(Produce).However, ultimately the tree may need to be cut down and sold.
Classification will be based on primary intention and hence it is a bearer plant)

Reference Point:
Unless given otherwise, fruit trees, tea, coffee and rubbers plantations are bearer plants.

(IV) A. Initial Recognition (General cases)

Initial Recognition
(Cost)

Purchased Self Constructed

Asset Asset

Purchase price XX MATERIAL XX

(+) Non creditable taxes XX (+) Labour XX
(-) Trade Discount (XX) (+) Production overheads XX
(+) Directly Attributable XX (Fixed / variable)
Expenses (Note I) (+) Borrowing cost XX
(+) P.V of site Restoration XX (If Qualifying Asset)
(+) Present value of XX
Total cost XX
Site Restoration /
Decommissioning
XX

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 IND AS 16 : PROPERTY, PLANT AND EQUIPMENT [P.P.E]

Note 1
Directly Attributable Expenses
These are expenses directly attributable to bringing the asset to the location and
condition necessary for it to be capable of operating in a manner intended by the
management. The following items will not be considered as directly attributable:
a. Inauguration Expenses
b. Losses / Expenses incurred after the asset is in the ready to use condition.
c. Cost of Staff Training for operating in a new environment or with a new set of
customers.
d. Relocation expenses
e. Administrative and General Overheads.

Incomes from the asset should be taken to P & L in case they are not directly attributable
to the cost incurred to get the asset in the ready to use condition. Example - Car Park Rent.
However, in case incomes are directly attributable to the construction, they should be
deducted from the cost of the asset. Example: Sale of Debris in Redevelopment

Note 2
Provision for Decommissioning / Site Restoration / Dismantling
These are legal / constructive obligations to restore the site back to its original
condition at the end of project life. As per IND AS 16, the present value of these
costs should be capitalized.
Example: Initial Cost (Y.O) : 90
Estimated Site Restoration : 40
Cost (Y.10)
Discount Factor : 10%
Life : 10 Years.
Journal Entries
At Year 0
PPE a/c Dr. 105.4
To Bank 90
 To Provision for site restoration 15.4
(40 x 0.385) PVF (10%, 10th Y)

At Year 1
Depreciation a/c Dr. 10.54
[105.4/10]
To PPE 10.54
Finance Cost a/c Dr. 1.54
[Unwinding of Discount]

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 IND AS 16 : PROPERTY, PLANT AND EQUIPMENT [P.P.E]

To Provision for site restoration a/c 1.54

[15.4 x 10%]
1.54 is attributable to the passage of
time and hence should be recorded as
Finance Cost. [P & L]
Year 2: Finance Cost
[15.4 + 1.54] x 10% = 1.69

Note 3
Abnormal Loss [wastage]
Abnormal Loss should be expensed to P & L, whereas Normal Loss should be
capitalized. Unless given, Losses / Wastages are assumed to be abnormal. If nothing
is specified, assume the loss to be abnormal.

(Refer Q. 1, 2, 3, 4, 5, 9, 15, 22, 27, 29, 30)

(IV) B. Initial Recognition (Special Cases)

SPECIAL CASES

Deferred Payment Barter

Payment Terms > 12
Months (Beyond normal
Terms)
Financing Transaction
(Hidden Loan
Interest)
P.P.E should be recorded at
cash price. If cash price is
not available, then present
value of agreed payments.
(The above cash price /
P.V. recoginition need to
be done irrespective of
whether we decided the
cash payment / deferred
payment option)
Payment Terms < 12 Has commercial Lacks commercial
Months (Within substance substance
Normal Terms)
P.P.E to be recorded P.P.E to be recorded
at Fair Value i.e. at WDV of assets
No Hidden Financing Fair value of assets given up (Note 1)
(Transaction may involve given up unless
a cash discount) fair value of asset If question is silent
received is more • Different Assets Exchange
reliable → Has Substance
• Similar Assets Exchange
P.P.E to be recorded at → Lacks Substance
the agreed invoice price. • Nature Not Determinable
Cash discount if any, to be → Has Substance
separately taken to P&L.
If the fair values of items given up and
received are the same, then we can take
either. However, if the fair value differ and no
information is given on reliability, the following
order of preference as per ICAI to be followed:
(i) F.V of Asset Given up
(ii) If (i) not available, F.V of Asset Received
(iii) If (i) and (ii) not available, WDV of Asset
Given up

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 IND AS 16 : PROPERTY, PLANT AND EQUIPMENT [P.P.E]

Note 1

Lacks Commercial Substance

A transaction lacks commercial substance if the position of the company remains
the same before and after a barter i.e. the nature of expenses and incomes are
expected to remain similar pre and post barter. If similar assets are exchanged,
we can consider that the transaction lacks substance. If nothing is given, we will
assume that a transaction has commercial substance.

(Refer Q. 6, 7, 8, 23)

(V) Subsequent Expenditure

Subsequent Expenditure

Expenses increasing
Repairs & Maintenance Major Replacement
Life or increasing Expenditure to Repair
(Day to Day) & Minor / Major Inspection /
Efficiency Beyond Damaged Asset
Replacements Major Overhaul
Originally assessed

Expensed to P&L Capitalized WDV of Asset XX

Asset Asset not
(+) Cost of New Part XX
impaired impaired
(-) WDV of Old Part XX
at time of at time of
(Note 1)
damage damage
REVISED WDV XX

Subsequent Subsequent
repair cost Repair cost
capitalized expensed
to P & L

Note 1

WDV of OLD Part

The cost of the old part can be found through the following sources in the order of
their preference:
(i) Breakup from the supplier’s invoice.
(ii) Fair Value of the part at the time of purchase.
(iii) If the above value are not available, the cost of the new part (Time Value
Adjusted) would be taken as the notional cost for the old part.

The WDV of the old part can be calculated by deducting depreciation applicable

(Refer Q. 10, 11, 12)

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 IND AS 16 : PROPERTY, PLANT AND EQUIPMENT [P.P.E]

(VI) Subsequent Valuation

Valuation Model

Revaluation Model
Cost Model
(Note 1, 2, 3, 4)

Original cost XX Fair Value XX

(-) Accum. Depreciation (XX) (Determined at sufficient intervals
WDV / Carrying Value XX (-) Subsequent Depreciation (XX)
Carrying Value XX

Note 1

The valuation model should be selected for each class of P.P.E separately. A class
of P.P.E would mean assets having a similar nature and similar end use. For e.g.:
Furniture’s, Computer, Agricultural Land, Industrial Land, Bearer Plants, Motor
Vehicles, Plant & Machinery etc. are different classes. All assets within the same
class should follow the same valuation model.

Note 2

Sufficient Intervals

P.P.E with volatile values P.P.E with stable values

Annual Revaluation Revaluation every 3 to 5 years

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 IND AS 16 : PROPERTY, PLANT AND EQUIPMENT [P.P.E]

Note 3

REVALUATION

Initial Upward Initial Downward

Revaluation surplus
(O.C.I) Profit & Loss a/c

Subsequent Downward Subsequent Upward

1. Balance in Revaluation 1. P & L (To the extent of loss
(O.C.I) already debited)
2. Excess (IF ANY) in P&L 2. Excess (if any) in Revaluation
surplus (O.C.I)

The balance in the revaluation surplus (O.C.I) may be written off to Retained Earnings
in the ratio of depreciation [Optional]. However, the transfer from Revaluation surplus
should be made directly to the Retained Earnings and should not be shown as income in
the statement of P&L (Non Reclassifyable OCI).
At the time of sale, the balance in Revaluation Surplus should be transferred to Retained
Earnings.

Transfer from Revaluation to Retained Earnings

In ratio of depreciation
Sale (Mandatory)
each year (Optional)

Note 4

Revaluation can be adjusted in any one of the following two ways: (Applicable when
company has prepared P.P.E. at original cost and there is a separate accumulated
depreciation account)
(i) Proportionately increase the original cost and accumulated depreciation OR
(ii) Write off the entire accumulated depreciation against the original cost of P.P.E,
thereby bringing the asset to WDV and the directly revaluing the asset.

(Refer Q. 13, 14, 24, 25, 26)

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 IND AS 16 : PROPERTY, PLANT AND EQUIPMENT [P.P.E]

(VII) Depreciation
(i) Depreciation can be provided under any of the following methods:

Straight Line Units of Production

Method Method etc.

A B C

Written Down
Value Method

(ii) The useful life and residual value should be annually reviewed. Any changes
would be treated as changes in accounting estimates and hence should be
prospectively applied.
(iii) A change in the method of depreciation should be treated as a change
in accounting estimate and hence should be prospectively applied.
Reason: The selection of depreciation method is based on an estimate of the
pattern of benefit the Company expects from the asset. If our estimate of this
pattern changes, the depreciation method would change.
(iv) Method of Depreciation
An asset needs to be split into its major components and the total depreciation
on the asset should be the sum total of the depreciation on all its major
components. The component method of depreciation should be applied if:
(a) Components are major (Unless given, a component should always be
assumed to be major)
AND
(b) Components have a separate useful Life.
Example: The internal seating in an aircraft and the body of an aircraft have
a separate useful life and hence they should be depreciated separately.
The depreciation on each part should be based on the useful life of the
part. However, if the life of the part exceeds the life of the asset, then it
would be appropriate to depreciate the part over the life of the part or the
remaining useful life of the asset whichever is shorter.
 The component method also applies to Major Inspections and Major
Overhauls.
Example: An aircraft is purchased at an initial price of ` 100. An initial
inspection needs to be done and it need to be repeated every 4 years. The
life of the aircraft is 10 years. The cost of inspection in Year 0, Year 4 and
Year 8 are 20, 30, 40 respectively. Show the accounting implications.

Original Cost (Purchase Price) 100

+ Inspection 20

34 CA BHAVIK CHOKSHI
 IND AS 16 : PROPERTY, PLANT AND EQUIPMENT [P.P.E]

Y.0 Initial Cost 120

100 20 (60)
(-) Depreciation [Y01 to Y.4] + ×4
10 4

Y.4 WDV 60
(+) New Inspection 30

 20 
(-) WDV of old inspection  20– ×4  -
 4 

Y.4 Revised WDV 90

Revised WDV 90
(70)
 60 30 
(-) Depreciation  – ×4 
 6 4 
Y.8 WDV 20
(+) New Inspection 40

30
(-) OLD Inspection 30– ×4 -
4
Y.8 Revised WDV 60
(60)
 20 40 
(-) Depreciation  + ×2
 2 2* 
* shorter of 4 (part) or 2 (Aircraft)

(Refer Q. 16, 17, 18, 19, 21, 24, 28)

(VIII) A. Changes in Provision for Site Restoration (Under Cost Model)

In case estimate for site restoration changes, the present value of the changes
in estimate should be adjusted against the cost of P.P.E in the year when the
estimate changes. This is because, the change in provision is due to an increase
in the estimated expenditure and not due to passage of time merely. Instead, the
change in the provision makes the asset more expensive or cheaper as a higher/
lower amount will have to be paid in the future. Therefore, the present value of these
changes needs to be adjusted against P.P.E and cannot be shown as Finance Cost.

(VIII) B. Provision for Decommissioning and Revaluation Model

Important Points:
(1) While calculating the amount of revaluation during the year, we usually compare
the fair value (FV) with the WDV. However, whenever there are dismantling

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 IND AS 16 : PROPERTY, PLANT AND EQUIPMENT [P.P.E]

obligations, the buyer will quote the fair value considering the assets fair value
as well as the present value of decommissioning Liability. This is because,
when a buyer purchases the asset, he would also take over the dismantling
obligations. Therefore, the fair value given in the question would usually be
the fair value for Net assets (i.e., Asset – Decommissioning Obligation) unless
otherwise given. Therefore,
Fair Value of Asset only XX
(-) PV of Decommissioning Liability (XX)
FV of Net Assets (Given in Question) XX

The fair value of the asset can be back calculated by substituting the given fair
value for net assets and the present value of dismantling liability
(2) The value of dismantling liability at each balance sheet date should first be
calculated after considering the unwinding and the present value of changes
in estimate (if any) and the revised value after considering the above
adjustments can be used to back calculate the Fair Value of asset only
(3) Any changes is the estimate of PV of site restoration expenses should be first
adjusted from the balance in the Revaluation surplus and excess if any against
Profit & Loss

(Refer Q. 20)

36 CA BHAVIK CHOKSHI